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Financial Services Law Insights and Observations


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  • 11th Circuit lifts a receivership and asset freeze of $85 million


    On November 4, the U.S. Court of Appeals for the Eleventh Circuit affirmed in part and vacated in part a district court’s order, finding that portions of the district court’s decision could not stand under the U.S. Supreme Court’s April ruling in AMG Capital Management v. FTC. The Court held in that case that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement.” (Covered by InfoBytes here). According to the 11th Circuit’s opinion, in 2019, the FTC alleged that individuals associated with multiple limited liability companies engaged in unfair or deceptive business practices in violation of 15 U.S.C. § 45(a). The FTC also filed a motion for a temporary restraining order the same day against the corporate defendants, seeking to freeze their assets, place the entities into a receivership, and enjoin all the parties from materially misrepresenting their services or from releasing consumer information obtained through the limited liability company. The district court granted the motion for a temporary restraining order in full in December 2019, and in January 2020, the district court granted a preliminary injunction against the limited liability company, extending the asset freeze, receivership, and injunction for the duration of the lawsuit.

    On appeal, the 11th Circuit affirmed those parts of the preliminary injunction enjoining the appellants from misrepresenting their services and releasing consumer information. The panel upheld the portion of the order that enjoined one of the investor entities and its principal, who was the former chairman of the corporate defendant’s board, from misrepresenting services on allegedly deceptive websites or releasing any customer information allegedly gathered through the websites. While the appeal was pending, however, the Court held in AMG Capital Management that 15 U.S.C. § 53(b) does not allow an award of “equitable monetary relief such as restitution or disgorgement,” leading the 11th Circuit to reverse the asset freeze and receivership aspects of the preliminary injunction. Additionally, the 11th Circuit noted that the principal from one of the entities “was individually responsible for the actions of [the corporate defendants],” and “likely knew that [the corporate defendants] made over eighty million dollars in two years selling 'guides' on government services, and it almost beggars belief that he would be completely unaware of how [the corporate defendants’] websites were raising that quantity of money.”

    Courts Eleventh Circuit FTC U.S. Supreme Court Enforcement Appellate UDAP

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  • 9th Circuit: Plaintiffs may proceed with citizenship status claims


    On October 26, the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of civil rights claims for lack of standing, holding in an unpublished opinion that the plaintiffs satisfied Article III standing requirements by alleging that a bank discriminated against non-U.S. citizens in barring them from opening accounts online. The plaintiffs, lawful residents with valid Social Security numbers, filed a putative class action complaint claiming the bank allowed U.S. citizens to apply for new checking accounts online, but required the plaintiffs (based solely on their status as non-U.S. citizens) to apply in person at a branch office. The district court dismissed the claims, ruling that the plaintiffs failed to establish standing for their discrimination claims on the basis of citizenship status. The 9th Circuit disagreed, finding that “discrimination itself . . . can cause serious non-economic injuries to those persons who are denied equal treatment solely because of their membership in a disfavored group,” and concluding that the plaintiffs alleged a concrete injury-in-fact sufficient to confer Article III standing. “The fact that [p]laintiffs would have ultimately obtained the same checking account given to U.S. citizens does not vitiate the alleged discriminatory injury: that [the bank] imposes on non-U.S. citizens a requirement to apply in person that it does not impose on others,” the appellate court said. The 9th Circuit added that this injury was directly linked to the bank’s policy and reversed the dismissal but declined to rule on the substance of the claims.

    Courts Ninth Circuit Appellate Of Interest to Non-US Persons State Issues

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  • 10th Circuit affirms TCPA statutory damages as uninsurable


    On November 2, the U.S. Court of Appeals for the 10th Circuit affirmed a district court’s decision that under Colorado law, an insurance company (plaintiff) had no duty to indemnify and defend its insured against TCPA claims seeking statutory damages and injunctive relief. According to the appellate opinion, the states of California, Illinois, North Carolina, and Ohio sued a satellite television company for telemarketing violations of the TCPA (TCPA lawsuit). The TCPA lawsuit sought statutory damages of up to $1,500 per alleged violation and injunctive relief. The satellite company submitted a claim to its insurer for defense and indemnity of the TCPA claims pursuant to existing policies. The plaintiff filed a complaint seeking a declaratory judgment that it need not defend or indemnify the satellite company in the TCPA lawsuit. The district court, relying on ACE American Insurance Co. v. DISH Network (covered by InfoBytes here), determined that, under ACE, the claim for statutory damages in the telemarketing complaint sought a penalty and therefore was “uninsurable as a matter of Colorado public policy,” and that the policies did not cover the complaint’s claim for injunctive relief because, as in ACE, they did not cover the costs of preventing future violations. Additionally, the district court determined that “the allegations did not potentially fall within the Policies’ definitions of ‘Bodily Injury’ or ‘Property Damage.’” The 10th Circuit affirmed the district court’s rulings, concluding that no coverage existed.

    Courts Appellate TCPA TSR Insurance FTC State Issues

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  • 11th Circuit’s new opinion says plaintiff still has standing to sue in outsourced debt collection letter action


    On October 28, the U.S. Court of Appeals for the Eleventh Circuit issued a split opinion in Hunstein v. Preferred Collection & Management Services, vacating its April 21 decision but still finding that the plaintiff had standing to sue. As previously covered by InfoBytes, last April the 11th Circuit reviewed the district court’s dismissal of plaintiff’s claims that the disclosure of medical debt to a mail vendor violated the FDCPA’s third-party disclosure provisions. The 11th Circuit originally held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” At the time, the appellate court determined that communicating debt-related personal information with the third-party mail vendor is a concrete injury under Article III. Even though the plaintiff did not allege a tangible injury, the appellate court held, in a matter of first impression, that under the circumstances, the plaintiff alleged a communication “in connection with the collection of any debt” within the meaning of § 1692c(b). 

    In its most recent opinion, the majority wrote that it was vacating its prior opinion “[u]pon consideration of the petition for rehearing, the amicus curiae briefs submitted in support of that petition, and the Supreme Court’s intervening decision in TransUnion LLC v. Ramirez.” The appellate court first re-examined whether the plaintiff had standing to sue. Among other things, the majority held that while the plaintiff cannot demonstrate “a risk of real harm,” he was able to show standing “through an intangible injury resulting from a statutory violation.” Further, the majority determined that TransUnion reaffirmed its conclusion that the plaintiff “alleged a harm that bears a close relationship to a harm that has traditionally been recognized in American courts.” (In TransUnion, the Court concluded, among other things, that “[i]n looking to whether a plaintiff’s asserted harm has a ‘close relationship’ to a harm traditionally recognized as providing a basis for a lawsuit in American courts, we do not require an exact duplicate.”) The majority further concluded that Congress’s judgment also favors the plaintiff because Congress indicated that violations of § 1692c(b) constitute a concrete injury.

    The appellate court next considered the merits of the case, with the majority concluding that the plaintiff adequately stated a claim that the transmittal of personal debt-related information to the vendor constituted a communication within the meaning of § 1692c(b)’s phrase “in communication with the collection of the debt.”

    Judge Tjoflat dissented, arguing that the April decision was issued before TransUnion, and following the Supreme Court’s reasoning, the plaintiff did not have standing because he did not suffer a concrete injury, and that there is an important difference between a plaintiff’s statutory cause of action to sue over a violation of federal law and “a plaintiff’s suffering concrete harm because of the defendant’s violation of federal law.” Judge Tjoflat further added that a “simple transmission of information along a chain that involves one extra link because a company uses a mail vendor to send out the letters about debt is not a harm at which Congress was aiming.”

    Courts Eleventh Circuit Appellate Debt Collection Third-Party Disclosures Vendor Hunstein Privacy/Cyber Risk & Data Security

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  • 9th Circuit denies bid to block Arizona’s dealer data privacy law


    On October 25, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s order denying a motion for preliminary injunction against enforcement of an Arizona statute designed to strengthen privacy protections for consumers whose data is collected by auto dealers. Under the Dealer Law, database providers are prohibited from limiting access to dealer data by dealer-authorized third parties and are required to create a standardized framework to facilitate access. The plaintiffs—technology companies that license dealer management systems (DMS)—sued the Arizona attorney general and the Arizona Automobile Dealers Association in an attempt to stop the Dealer Law from taking effect. The plaintiffs contended that the Dealer Law is preempted by the Copyright Act because it gives dealers the right to access plaintiff’s systems and create unlicensed copies of its dealer management system, application programming interfaces, and data compilations. The plaintiffs further claimed the Dealer Law is a violation of the U.S. Constitution’s contracts clause.

    On appeal, the 9th Circuit agreed that the plaintiffs were not entitled to a preliminary injunction. The appellate court concluded that the Dealer Law was not preempted by the Copyright Act, because, among other things, the plaintiffs could comply with the Dealer Law without having to create a new copy of its software to process third-party requests. Moreover, the 9th Circuit noted that even if the plaintiffs had to create copies of their DMS on their servers to process third-party requests, they failed to established that those copies would infringe their reproduction right, and the copies the plaintiffs took objection to “would be copies of its own software running on its own servers and not shared with anyone else.” The appellate court further held that the Dealer Law was not a violation of the U.S. Constitution’s contracts clause because, among other things, plaintiffs did not show that complying with the Dealer Law prevented them from being able to keep dealer data confidential. “Promoting consumer data privacy and competition plainly qualify as legitimate public purposes,” the appellate court wrote. “[Plaintiffs] point[] out that the Arizona Legislature did not make findings specifying that those were the purposes motivating the enactment of the statute, but it was not required to do so. The purposes are apparent on the face of the law.”

    Courts Privacy/Cyber Risk & Data Security State Issues Consumer Protection State Attorney General Arizona Ninth Circuit Appellate

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  • 2nd Circuit: Turkish bank not immune from sanctions


    On October 22, the U.S. Court of Appeals for the Second Circuit upheld a district court’s ruling against a Turkish state-owned commercial bank (defendant) denying its bid for immunity based on its characterization of an “instrumentality” of a foreign service, which is not entitled to immunity from criminal prosecution at common law. The U.S. government alleged that the bank converted Iranian oil money into gold and hid the transactions as purchases of goods to avoid conflicting sanctions against Iran. The district court denied the defendant’s motion to dismiss and partially concluded that the defendant was not immune from prosecution because the Foreign Sovereign Immunities Act (FSIA) confers immunity on foreign services only in civil proceedings. Furthermore, the district court concluded that, “even assuming arguendo that FSIA did confer immunity to foreign sovereigns in criminal proceedings, [the defendant’s] conduct would fall within FSIA’s commercial activity exception.” Additionally, the district court rejected the defendant’s “contention that it was entitled to immunity from prosecution under the common law, noting that [the defendant] failed to cite any support for its claim on this basis.” The district court found that the defendant’s characterization of its activities as sovereign in nature “conflates the act with its purpose,” finding that the lender's alleged money laundering was the type of activity regularly carried out by private businesses. The fact that the defendant is majority-owned by the Turkish Government is irrelevant under FSIA even if it is related to Turkey’s foreign policy because “literally any bank can violate sanctions.”

    On appeal, the 2nd Circuit noted that it was unnecessary to resolve a question presented in the case—if foreign governments can assert immunity against criminal, as well as civil, charges—since money laundering would qualify as a commercial activity exception. The appellate court noted that, “[t]he gravamen of the Indictment is not that [the bank] is the Turkish Government’s repository for Iranian oil and natural gas proceeds in Turkey,” but that “it is [the bank’s] participation in money laundering and other fraudulent schemes designed to evade U.S. sanctions that is the ‘core action.’” And, “because those core acts constitute ‘an activity that could be, and in fact regularly is, performed by private-sector businesses,’ those acts are commercial, not sovereign, in nature.” The opinion also notes that “[e]ven assuming the FSIA applies in criminal cases—an issue that we need not, and do not, decide today—the commercial activity exception to FSIA would nevertheless apply to [the defendant’s] charged offense conduct.” The appellate court agreed with the district court, concluding that the bank must face criminal charges in the U.S. for allegedly assisting Iran evade economic sanctions by laundering approximately $20 billion in Iranian oil and gas revenues.

    Courts Appellate Second Circuit Financial Crimes Of Interest to Non-US Persons Anti-Money Laundering Iran Foreign Sovereign Immunities Act OFAC Sanctions

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  • 8th Circuit says website terms of use are unenforceable


    On October 8, the U.S. Court of Appeals for the Eight Circuit overturned a district court’s ruling that a corporate defendant’s arbitration clause found in its website’s terms of use was unenforceable. The 8th Circuit disagreed holding that a triable issue of material fact existed as to whether the plaintiffs agreed to arbitrate.  Relying on a notation on the back of the gift cards that directed purchasers to its website where the terms of use and arbitration agreement were located, the defendant argued that the plaintiffs had agreed to arbitration. The district court disagreed explaining that plaintiffs “could not assent to it. . .unless they saw it first. For that reason, there was no ‘need’ to hold ‘a trial on the question of arbitrability.’”

    On the appeal, the 8th Circuit explained that the district court’s task was to determine if the defendant and the plaintiffs had an arbitration agreement, and, if so, what it covered; however, the district court improperly addressed the question of mutual consent, which was in dispute and “generally a factual question.” According to the 8th Circuit, where there is a material dispute of fact regarding whether there was an agreement to arbitrate, the Federal Arbitration Act requires the district court to proceed to a trial on the issue.

    Courts Class Action Arbitration Eighth Circuit Appellate

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  • District Court: News reports cannot reverse dismissal of sanctions suit

    Financial Crimes

    On October 13, the U.S. District Court for the Southern District of New York denied a relator’s motion seeking indicative relief, ruling that post-ruling news reports were insufficient to reverse the dismissal of a qui tam suit accusing a UK-based bank and related entities (collectively, “defendants”) of violating U.S. sanctions against Iran. In 2020, the court dismissed the complaint after finding that the government “had articulated multiple valid purposes served by dismissal, and that relator had not carried its burden to show that a dismissal would be ‘fraudulent, arbitrary or capricious, or illegal.’” The relator’s appeal to the U.S. Court of Appeals for the Second Circuit is pending. At the district court, the relator moved for indicative relief based on the premise that if the court had jurisdiction, it would have vacated the dismissal based on disclosures in post-dismissal media reports.

    According to the opinion, the defendants entered into a deferred prosecution agreement (DPA) with the DOJ in 2012 following a multi-year, multi-agency investigation concerning allegations that defendants deceptively facilitated U.S. dollar transactions by Iranian clients between 2001 and 2007 in violation of U.S. sanctions and various New York and federal banking regulations. The defendants admitted to the violations and paid hundreds of millions of dollars in fines and penalties. The relator subsequently filed a qui tam action alleging the defendants misled the government in negotiating the DPA. A government investigation found no support for the allegations. In 2019, the DOJ entered a new DPA with defendants. The relator amended its complaint alleging improper conduct related to the 2019 DPA, which the court dismissed.

    The relator then filed the instant motion to reopen the case, arguing that news reports published in 2020 showed that the defendants engaged in transactions with sanctioned Iranian entities after 2007, which was contrary to the government’s representations when it moved to dismiss the case. The relator claimed that the government incorrectly asserted that it closely examined records before seeking dismissal and failed to honestly conclude that the allegations were meritless. In denying the relator’s motion, the court explained that the relator failed to show that the news reports would be admissible or were important enough to change the outcome of the earlier motion to dismiss. The court held that news reports are inadmissible and further concluded that none of the suspicious activity reports discussed in the news reports contradicted the government’s representations in its motion to dismiss.

    Financial Crimes Courts Of Interest to Non-US Persons OFAC OFAC Sanctions Iran Relator Qui Tam Action DOJ Appellate Second Circuit SARs

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  • 5th Circuit delays payday lending compliance until after resolution of appeal


    On October 14, the U.S. Court of Appeals for the Fifth Circuit stayed the implementation of the payment provisions of the CFPB’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (2017 Rule) for 286 days after the resolution of the appeal. The appellate court’s order contrasts with an order issued last month by the U.S. District Court for the Western District of Texas, which denied a request by the two trade group appellants to stay the compliance date pending appeal (covered by InfoBytes here). The district court previously upheld the 2017 Rule’s payment provisions (covered by InfoBytes here), finding that the Bureau’s ratification “was valid and cured the constitutional injury caused by the 2017 Rule’s approval by an improperly appointed official,” and that the payment provisions were not arbitrary and capricious. The district court’s order regarding the stay granted the plaintiffs’ request to stay the compliance date, which had been set as August 19, 2019, until 286 days after final judgment. The 5th Circuit’s order, however, grants the trade groups’ motion to extend the stay of the compliance date until 286 days after resolution of the appeal.

    Courts Appellate Fifth Circuit CFPB Payday Lending Payday Rule Agency Rule-Making & Guidance

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  • CFPB, FTC, and North Carolina argue public records website does not qualify for Section 230 immunity


    On October 14, the CFPB, FTC, and the North Carolina Department of Justice filed an amicus brief in support of the consumer plaintiffs in Henderson v. The Source for Public Data, L.P., arguing that a public records website, its founder, and two affiliated entities (collectively, “defendants”) cannot use Section 230 liability protections to shield themselves from credit reporting violations. The case is currently on appeal before the U.S. Court of Appeals for the Fourth Circuit after a district court determined that the immunity afforded by Section 230 of the Communication and Decency Act applied to the FCRA and that the defendants qualified for such immunity and could not be held liable for allegedly disseminating inaccurate information and failing to comply with the law’s disclosure requirements.

    The plaintiffs alleged, among other things, that because the defendants’ website collects, sorts, summarizes, and assembles public record information into reports that are available for third parties to purchase, it qualifies as a consumer reporting agency under the FCRA. According to the amicus brief, the plaintiffs’ claims do not seek to hold the defendants liable on the basis of the inaccurate data but rather rest on the defendants’ alleged “failure to follow the process-oriented requirements that the FCRA imposes on consumer reporting agencies.” According to plaintiffs, the defendants, among other things, (i) failed to adopt procedures to assure maximum possible accuracy when preparing reports; (ii) refused to provide plaintiffs with copies of their reports upon request; (iii) failed to obtain required certifications from its customers; and (iv) failed to inform plaintiffs they were furnishing criminal information about them for background purposes. The defendants argued that they qualified for Section 230 immunity. The 4th Circuit is now reviewing whether a consumer lawsuit alleging FCRA violations seeking to hold a defendant liable as the publisher or speaker of information provided by a third party is preempted by Section 230.

    In their amicus brief, the CFPB, FTC, and North Carolina urged the 4th Circuit to overturn the district court ruling, contending that the court misconstrued Section 230—which they assert is unrelated to the FCRA—by applying its immunity provision to “claims that do not seek to treat the defendant as the publisher or speaker of any third-party information.” According to the brief, liability turns on the defendants’ alleged failure to comply with FCRA obligations to use reasonable procedures when reports are prepared, to provide consumers with a copy of their files, and to obtain certifications and notify consumers when reports are furnished for employment purposes. “As the consumer reporting system evolves with the emergence of new technologies and business practices, FCRA enforcement remains a top priority for the commission, the Bureau, and the North Carolina Attorney General,” the brief stated. “The agencies’ efforts would be significantly hindered, however, if the district court’s decision [] is allowed to stand.”

    Newly sworn-in CFPB Director Rohit Chopra and FTC Chair Lina M. Khan issued a joint statement saying “[t]his case highlights a dangerous argument that could be used by market participants to sidestep laws expressly designed to cover them. Across the economy such a perspective would lead to a cascade of harmful consequences.” They further stressed that “[a]s tech companies expand into a range of markets, they will need to follow the same laws that apply to other market participants,” adding that the agencies “will be closely scrutinizing tech companies’ efforts to use Section 230 to sidestep applicable laws. . . .”

    Courts CFPB FTC North Carolina State Issues Amicus Brief FCRA Appellate Fourth Circuit Consumer Reporting Agency

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